Tuesday, 4 June 2019

Kenya’s Killer Punch against Financial crimes

Dr.  Njoroge: Governor Central Bank:
He wrongfooted the "mattress bankers"
 Financial crimes in Kenya, which includes; theft of public resources, tax evasion and money faking and fraud face a killer punch. The Central Bank of Kenya has launched new banknotes and immediately demonetized the 1000 shilling note.
The banknote is the highest store of value in Kenya and very popular with those involved in financial crimes including fakers. The current one will cease to be a legal tender in four months’ time, on October 1.
This is a killer punch because it tightens the noose for “mattress bankers.” Many are, of course, involved in financial crimes. That is why the money cannot be banked for fear it will be traced to them. The rules of retiring the old note are stringent, geared to expose the owners of the money.  This leaves the mattress bankers with only two options: bring it out and answer questions, and perhaps, face the law or go bust.
 The option of facing the law is not attractive given the stiff penalties already imposed on proven graft cases. Read http://eaers.blogspot.com/2018/05/graft-under-siege-in-kenya.html.  Many could opt to let the wealth go to waste, after all, they never worked for it. Their money could soon be museum pieces!
The rules allow those who hold less than one million shillings in one thousand shilling notes, to walk to the nearest bank and get it replaced provided they provide proof of ownership.  Those holding between one million  and five Million shillings will have to go to their banks where they hold accounts and are known and provide the usual proof.
Haji: DPP cut his  teeth at NIS
Those holding  between one Million and five Million in one thousand shillings notes and do not have bank accounts will have to take it to the Central bank for replacement.  
That is a catch22 situation: The corrupt cannot just walk to a bank and deposit large volumes without answering some nasty questions. The thought of visiting the Central bank is definitely a nightmare.  And the commercial banks, smarting from hefty fines imposed on them by the Central Bank for handling money stolen from the National Youth service, NYS, will be watching their backs.
The Kenya Bankers’ Association has warned that there will be no escape for financial criminals who hold large volumes of illicit money in their homes. And these are the targets of the new order in Kenya’s money world. The association has warned that not even buying assets such as buildings, and vehicles will clean the money. They are right!
Kenya has advanced in electronic funds transfer system. Even supermarkets and other traders accept electronic transfer using Mobile money transfers. Large financial transactions are effected through electronic Cash transfers which are secure and reliable. This means that hefty cash purchases of high-value assets will be red flagged suspicious!
And given that some are suspected to hold tens, if not hundreds of millions of illicit cash, that cannot be spend overnight, the order must be a nightmare for them.
So what to do?  Tough Choices! The financial criminals cannot even use their relatives and friends to clean the money as they will have to explain how they made the money to the banks. This leaves only one other choice: using perennial litigants to try and stall the implementation of the demonetization.
George Kinoti: The no
nonsense head of DCI
Two of these litigants have already filed suits seeking to stall the move. However, it remains to be seen whether any Judge will be foolhardy to stall it. Already the judiciary is being viewed as protectors of the corrupt and other criminals by issuing orders that amount to an abuse of office.  It has to be extremely careful how they tackle this matter lest it turns out to be the proverbial “last straw that broke Carmel’s back.”
 The move to demonetize the 1000 bank note, is apparently the final part of the strategy to make financial crime expensive in Kenya. It comes hot on the heels of the move to nationalize physical assets of graft suspects if they cannot account for it. Already, the anti-graft body has recovered an estimated US$ 300 million of such assets. The Assets Recovery authority, another institution whose mandate is to recover assets suspected to be acquired with proceeds from crime has also recovered some assets and is in the process of recovering others.
 In effect, financial criminals will soon be reduced to paupers: if they have not found a way of disposing of the money stashed in their mattresses, it would soon turn into worthless paper. Also, Read http://eaers.blogspot.com/2018/05/graft-in-kenya-are-40-days-of-thief-over.html
The other parts of the strategy to make financial crime expensive includes creating a multi-agency investigating team, which ensures that all skills are put together to investigate any suspected crime.  
The entry of National Intelligence Service into active investigations must worry a number of people and scare others for these can out ghost anyone.  And the sleuths are playing a major role in the war against crime, including financial crimes.
All security agencies in Kenya, including the Police, the Directorate of Public Prosecutions, and the Ethics and anti-Corruption authority are now managed by people who cut their teeth in either military or civilian intelligence. The National Intelligence Service itself is headed by a former Chief of military intelligence. The message is clear here: There is no place to hide for criminals, not even for corrupt judges!
A similar multi-agency structure, created to fight the Somalia based terror group Al- Shabaab, has proven lethal to the terrorists. The forces on the ground are under one command which has eliminated bureaucracy in sharing intelligence and operations.
All it takes is a distress call for other units to swing into action in support of Kenyan forces in Somalia. Although it has not eliminated Al-Shabaab, the strategy has degraded the militants and also reduced terror attacks on Kenyan soil.
 The corrupt and other financial criminals face a similar fate because, the multi-agency team, in this case, involves the Central Bank.

Wednesday, 29 May 2019

Step aside Fintechies,banks re-enter SME lending

Dr. James Mwangi: 
EquityBank Group CEO
 Six commercial bank groups in Kenya have resolved to lend to Micro and small enterprises, SMEs. The decision by the six, four of which are the largest banks in the country, will have a significant impact on credit to SMEs. This marks the beginning of a major price war that could benefit the borrower. 
Equity Bank group shot the first volley: It set aside US$1.5 billion to lend to the sector of the economy at 13 percent per annum probably through its EAZZy app. Soon thereafter, a consortium of five indigenous banks launched Stawi, a mobile phone app to lend to the sector amounts ranging from US$300 to $2,500.  The consortium targets some 10,000 applicants this year, which means that at least an additional US$25 million is available for the SMEs to borrow.
It is not clear how much Equity will lend per customer, but given the size of its war chest, it could lend more.
The consortium includes; Commercial Bank of Africa, the Cooperative Bank of Kenya, Diamond Trust Bank Kenya Limited, KCB Bank Limited and NIC Group.  Some are among the largest banks in the country. KCB is the leader in terms of assets followed by Equity Bank and Co-op Bank.  However, Co-op Bank will soon lose the third slot to NIC/CBA once the two banks merge. KCB is also gunning to buy National Bank of Kenya, thus maintaining its lead.
The shift marks the end of the two-year credit drought SMEs have suffered since the introduction of interest rates caps in 2016. The move, which saw banks turn to lend the government and high worth clients also cost them in terms of income. However, now that Treasury Bonds are becoming unattractive given their declining yields, commercial banks now have to turn to the real economy for business.
SMEs are the largest employers in the country and also drivers of economic growth. Most SMEs fall under the informal sector and by extension, the term informal refers to people in self-employment or small-scale industries. The informal sector is estimated to constitute 98 percent of business in Kenya, contributing 30 percent of jobs and 3 percent of Kenya’s GDP.
 That is the real sector of the economy! And starving it of credit is a recipe for an unequal distribution of the benefits of economic growth. The Kenyan economy has posted robust growth rates in the last decade, hovering around 5.5 percent.  This has pushed the real income per capita to US$1895 last year. However, the population living in absolute poverty is still in the double digits largely due to the slow-down in the growth of the informal sector.
Joshua Oigara: KCB Group CEO
The dearth of bank credit has seen the rise of fintechies, mobile phone loan apps that lend small amounts ($50-100) to small business and households. Now with the shift in policy towards lending this sector with a longer tenor and low-interest rates, the commercial banking industry has set the stage for price wars with the techies.
The apps use the Mobile phone platforms to lend. They Include Tala, M-shwari, KCB-MPesa, Branch international among others. Except for KCB M-Pesa, the others are extremely expensive.  
So the commercial banks, by easing the conditions of their loans and lowering interest rates, are headed for greener pastures.  
Although still conservative, the shift to lending to SMEs, could proof lucrative for the banking industry- and the economy. Credit to the private sector, according to the Central Bank of Kenya by 3.4 percent in the 12 months to February, way below the 12 to 15 percent level which deemed ideal to spur robust economic growth. Credit to the SMEs is a hanging fruit! They need not worry about defaults the default rate is still low. 
 Safaricom’s Fuliza, a form of an overdraft facility, which has been around for a few months, lend the equivalent of US$36 million in the first month of operation.  That is more than the stawi app plans to lend this year. This is a pointer to the high demand for credit in the country
The fintechies lend for just about a month at exorbitant rates of more than 10 percent.   This tenor is not supportive of business growth for it does not generate profits. It just generates enough to pay the loan and interest, leaving the investor with nothing to write home about. That has seen the number of defaults increase because they are just shylocks on Mobile apps. Shylocks are generally spurned attracting only the desperate cases.
But with banks now offering unsecured loans, uptake is likely to shoot through the roof as Fintechies witness a decline in business. The longer tenor and low interest rate is the magnet to attract SMEs whose major hurdle with bank loans was lack of securities to offer.

Thursday, 9 May 2019

Kenya Pioneers East Africa in PPPs

A prototype of the Mombasa
 - Nairobi Expressway
Kenya is the pioneer is Public-Private - Partnerships, PPP, in East Africa with total PPP investment estimated of $6.4 billion already committed. Of these, an estimated $2 billion is already invested in the energy sector. The balance, an estimated $4.2 billion will be sunk into roads construction.
 Public-Private- Partnerships are the provision of public services by the private sector for a fee. The private investors charge a toll in case of roads or sign PPAs with the national distributor in case of electricity.
Investors sign a 25-year concession during which period they recoup their investment plus profit as they operate the projects they build. All the contracts in the energy sector are on a Build Own and operate (BOO) model while the in road construction, the contracts are on Build Operate and Transfer (BOT ) model.
PPP projects are spread across the country in a strategy designed to ensure equitable development. For instance, the US$23 billion LAPSSET will open a second transport Corridor in Northern Kenya which forms 67 per cent of the country’s land mass.  It will comprise  of; a mega Port, a high-speed railway line, an Oil pipeline and a trunk road, all covering more than 2000 Kilometres.
The energy and roads sub-sectors are popular with investors because of growing demand in the country. The Energy sector is the clear leader in terms of the investment already sunk and rendering service to the public. An estimated 500 MW of power is already live on the national grid through P3. Wind and geothermal power generation are popular with investors. An impressive US$ 2 billion has been sunk into clean and renewable energy industry. Wind power commands a large share followed by geothermal.
The largest of these is the US$700 million, 310 MW Lake Turkana wind Project billed as the largest wind farm in Africa.  This is already generating power for the national grid at US$0.08 per unit. There two other on-going projects worth US$200 million, bringing the total investment in the Wind generation sector to uS$900 million.
Geothermal power generation has also attracted significant interest. Or Power 22, a subsidiary of the US-based Or power Inc. has over the last two decades invested an estimated US$800 million in geothermal power generation. Or Power 22 is the largest independent power producer generating some 139MW to the national grid, second only to the state-owned KenGen which generates more than 500MW.
Route Map of Lappset  Corridor.
There are three other generators contracted to produce a total of 105 MW from Menengai fields owned by GDC, the state-owned exploration firm, whose major business is to drill the Wells, cap them and sell the steam to power generators to produce electricity.
Roads are taking Lion’s share with $4.4 billion slated for investment in roads. The Mombasa –Nairobi 473 Kilometre expressway will cost US$3billion. It will raise cruising speeds to 120 Km and cut travel time between the two cities to four hours, from eight to ten hours currently.  The contract was won by Betchel Executives of the US.  This road, together with the Nairobi-Mau summit section is on the busy Northern Corridor. The Nairobi- Mau Summit section will cost US 180 million and has been awarded to a French Consortia.
 The 520 Lamu- Isiolo highway will cost US$ 620 million. It is part of the proposed $23 billion LAPSSET corridor that will open Northern Kenya and link to Ethiopia and South Sudan. It has been awarded to a South Africa, consortia involving the South Africa Development Bank. The Corridor’s infrastructure, including a standard Gauge Railway Line, and a 32 berth deep-sea port at Lamu, will be developed on PPP basis according to the LAPSSET Authority.
In Nairobi, a 43 KM elevated road linking the city’s Westlands suburb and the Jomo Kenyatta International Airport  that will cost US$567 million, has been  awarded to a Chinese contractor
Construction of these roads is expected to begin during the next financial year.
The road transport sub-sector has registered rapid growth over the last four years with its Value in GDP rising from US$5.9 billion in 2014 to $7.8 billion in 2018, a 32 per cent

growth. This makes it an attractive venture for the private sector.
The shift from government provision of public services to the private sector is a masterstroke of sorts: Apart from improving the speed of construction, it eliminates the spectre of cost escalation due to delays. It also reduces public debt while ensuring that services reach as many people as possible in the shortest possible time.

Monday, 29 April 2019

East Africa’s GDP to rise by 13 percent- If Weather allows.

Ethiopia's GDP projected
 to remain robust 
 East Africa’s GDP is expected to grow by 13.3 percent to US$340 billion this year, says IMF Database for April 2019. The five largest economies in the region will raise the total regional GDP by US$28.2 billion to control $302.2 billion in 2019 from the $265 billion they controlled last year.  The regional GDP last year stood at US$300 billion, according to the IMF data.  This year, the GDP is expected to rise to $340 billion. Of the five star performers, Kenya and Ethiopia generated 57 percent or $169.5 billion last year.
 The star performers including Ethiopia, Kenya, Rwanda, Tanzania, and Uganda will grow by an average of 6.32 percent including Tanzania. But if Tanzania is excluded. The top four will rise by 7.1 percent.
Kenya, says the IMF data, will be the leader posting absolute GDP growth of $11 billion, leaving her peers to share the rest of the spoils. In generating such large absolute growth, Kenya’s GDP will cross the US$100 billion Mark this year, up from US$90 billion last year. This will be the largest absolute expansion in recent years.
 The same data show that in 2018, in absolute terms, Kenya’s GDP grew by US$10 billion ahead of $4.7 generated by both Ethiopia and Tanzania. This year, the Database shows, Ethiopia is hot on the heels of Kenya, projected to generate an impressive $10.7 billion in absolute growth. Kenya and Ethiopia will therefore contribute $22 billion or 78 percent of the US$28.2 billion absolute growth in the region this year.
However, bad weather is likely to taint this rosy picture. The long rains have failed this year and the Short rains in October- December is uncertain.  The resulting drought will affect agricultural output which contributes more than 15 percent of the GDP.
Consequently, IMF projections for the region are likely to be missed by a significant margin. A slowdown in agricultural production is likely to be a drag on other sectors, mainly food processing. It will lead to higher food prices thus leading to a decline in absolute consumption- the number of goods and services consumed in the region. Private consumption contributes between 64 and 84 percent of the demand-driven growth in East Africa, Kenya included.  Given that the rains have failed in the region generally, growth in the entire region will soften.
But Services and industry, including the construction of infrastructure, could stagger the impact of drought and drive economic growth this year. Generally, these are the largest contributors to growth from the supply side, beating agriculture to the second position. In Kenya, the services sector contributes 71 percent of the GDP growth, the highest share in the region. In Ethiopia, the  industrial sector grew by 18.7 percent in 2016/17, and services grew by 10.3 percent, says AfDB’s Regional Economic Outlook 2019. The sector is also a significant growth driver in Tanzania and Rwanda.
Despite the wet towel, the IMF projections clarify some grey areas in the regional economy. Among these: Is borrowing to invest in critical infrastructure good or bad?  The estimates are positive that it is good. In fact, other reports such as The World Bank’s African Pulse and the Africa Development Bank’s Regional Economic Outlook, agree that investing in infrastructure contributed to the fast growth in East Africa.
Consequently, the projected growth trajectory tacitly acknowledges that the massive investment in infrastructure over the last few years is bearing fruit.
 Kenya, like several of her neighbours, boasts of large increases in infrastructure output and, going by the available data, is probably the leader in the region: Paved roads, according to 2018 Economic Survey reached 20,400 Kilometers in 2017.  In a country where the market for goods and services is within a 450 Kilometer radius, this amount of paved roads implies a wide reach, opening up previously difficult areas to reach.
Kenya's GDP projected to
 remain robust by IMF
The country has increased its electricity generation capacity to 2.9 GW, much of it from renewable sources such as Wind 338 MW, Geothermal 700MW, Solar 55 MW in addition to hydro 885 MW. Peak demand for electricity stands at 1.9 GW leaving a comfortable surplus. For this reason, the country is looking at decommissioning thermal power. In addition, the country has in place a Standard Gauge Railway from Mombasa to Nairobi whose 120 KM extension to Naivasha will be completed by the first half of this year. The Railway has cut freight transport from the Port of Mombasa to Nairobi to eight hours.
According to the African Development Bank’s Regional Economic Outlook 2019, industrialization is picking up pace in East African countries that have invested heavily on infrastructure. Kenya and Ethiopia top the league.  These two led in the number of projects under construction. According to the business consultancy Firm, Delloite, in 2017, the two commanded 43 projects with, Kenya leading with 23 projects and Ethiopia with 20 projects.
Tanzania's  growth to 
decelerate, IMF
The projections also identify the leading economy in east Africa: At US$100 billion, Kenya is the clear leader followed by Ethiopia.  Ethiopia, the second largest economy will rise to US$90 billion, says the IMF projection.
IMF estimates that Kenya’s GDP will grow by 5.83 percent, a slight decrease from 5.95 percent last year. Other estimates say the GDP growth rate could pass 6 percent. Other fast growers are; Tanzania $61 billion, Uganda $30.3 billion and Rwanda $9 billion. The IMF projected trajectory shows that Kenya’s GDP will reach $157 billion in 2023, four years down the road.   
In tandem with the growth in GDP, income per capita is also rising in the region as the five leading economies hurtle towards middle-income status. Kenya has already entered that club and her GDP per capita is expected to grow to $2,020 in 2019 and $2,962 four years down the road.
This explains why private consumption has become a leading driver of demand-led growth in the region.  Private consumption is an indicator of the income levels in a country. Thus large consumption expenditure is an indicator of a population growing richer.  Consequently, the region is a significant market for its own products and imports.
 Private Consumption contributes 84 percent of demand-driven growth in Kenya, and 64 percent in Tanzania. Both the Outlook and the World Bank’s Africa Pulse, also published this month, agree that growth in domestic demand is driving economic growth in the region.  On the reverse, declines in private consumption contributed to a contraction in growth in Burundi and South Sudan.
In Kenya and Ethiopia, the wide reach of infrastructure, especially roads, is opening up previously difficult areas to reach. This, coupled with the wide reach of electricity connectivity, is improving economic activity in rural areas. Kenya, where demand for electricity expands at 8 percent, has connected 67 percent of households, says the local Power Distributor, KPLC.
The large growth will also have an implication on public debt, said to be 47 percent of the GDP. A larger GDP will lower the ratio of debt to GDP, pulling the region away from the risk of debt distress.  This will, in turn, increase investor confidence and open the taps for FDI flows into the country in addition to increased tax revenue. It also means better prospects for the expansion of jobs, investment opportunities and delivery of social services by the government.
The four countries –Kenya, Tanzania, Ethiopia, and Rwanda- are ranked among the top economic performers in Africa by the Pulse.  However, Tanzania, according to IMF is slipping, with a growth rate projected at 3.9 percent this year. This is a departure from the previous trend of growing at more than six percent.

Monday, 22 April 2019

Jitters as Tanzanian economy slows

President Magufuli:  dwindling economic fortunes
 pose a challenge to his re-election
 After years of neglecting due process and imposing unsustainable policies and legislation, the Tanzanian economy is decelerating.
According to the IMF database for April 2019, Tanzania’s GDP growth rate has sharply declined from more than 6 percent on average, to 4 percent this year. The rate will remain subdued over the next four to five years says the IMF. This sharply contrasts the country’s optimistic estimates of a 7.3 percent growth this year, up from an alleged 7.2 percent last year.
None of the independent reports on the Tanzanian economy supports the government’s position. For instance, the Regional Economic Outlook by the African Development Bank estimates that the GDP grew by 6.6 percent last year. The IMF data agrees with these findings in their review but estimates a sharp 2.7 percentage decline this year which according to IMF gurus, marks the start of the lean period for Tanzania.
So sensitive is the deceleration that Tanzania refused to allow the IMF country team to publish its Article IV Consultation report, according to Reuters.  The Reuters report, published in Nairobi, does not carry the author’s byline, showing the sensitivity of the report. Normally, reports about Tanzania are published in Dar-Es-Salaam, the commercial capital.
Tanzania has criminalized publishing of statistical data that contradicts the government’s data. GDP growth rate will decline sharply from 6.6 percent last year to 3.9 percent in 2019. It will remain below five percent till 2024, the data shows.

There is a reason for the sensitivity: Tanzania is entering an unfamiliar territory for she has posted robust growth averaging 6.3 percent over the last two decades ending in 2017.  The deceleration will see her slip from the rank of Africa’s fastest-growing economies to the laggards.

According to the African Pulse, Published by The World Bank, Tanzania is among the top performers in Africa. In the world banks taxonomy, Tanzania is ranked among The established Performers, those who have consistently posted growth rate above 5.4 percent for a long period of time. With the new circumstances, the country will drop to the level of Stuck in the middle countries whose growth rate hardly exceeds 5 percent.
The deceleration is unwelcome news for two reasons: One the downturn comes in the run-up to an election year.  The deceleration will vindicate critics who have questioned President Magufuli’s management of the economy.  Coming at a time when the ruling party’s fortunes are shrinking, the deceleration could result in the rout for the ruling Chama Cha Mapinduzi, CCM, in the ballot. Its popularity has shrunk from 85 percent in 2005 to 55 percent in 2015 and could shrink even further this year.
 Analysts, including this publication, have in the past warned that Tanzania is on the wrong path.  DFIs have warned that Tanzania’s, “hostile business environment” will affect wealth creation.
The decline in economic fortunes has sparked off panic within the ruling party resulting in even more aggressive legislation that made a bad situation worse.
Tanzania is now firmly on an Economic Nationalism path in a bid to create a “fairer economy” for the country and its citizens.  Such policy involves a greater state role in the management of the economy, diminishing the role of markets.
This has led to persistent wrangling with the Private sector, which responded by withholding investments. FDI, according to IMF has declined from five percent of the GDP to two percent in 2017. And there are prospects for further declines. The IMF also pointed at poor investment in low return infrastructure projects. Among these projects is the Central Corridor Railway line which is experts say is, unviable unless it diverts traffic from Kenya’s Mombasa Port. The Hoima-Tanga Oil pipeline is also another project that fits in the category of projects that confer no benefit to Tanzania.
 It has kept investors away by exploiting what economists call “obsolescing bargain” to the full. The obsolescing bargain is a situation where bargain power shifts from the investor to the host government after an investment has been put in place and cannot be transferred elsewhere. This is blackmail and it helps keep future investors away.
Tanzanian SGR: A low return investment
While the politicians say they want to create a “fairer economy,” the business community sees a tendency to create a bureaucratic and obstructive government, says Petroleum Economist, warning that “investors could be forced to think hard before they commit any funds for Tanzania.”
The AfDB has warned in its 2019 Africa Economic Outlook, that policy uncertainty could unsettle the private sector, stifling economic growth.
Apart from demanding a larger share in the mining sector, Tanzania is also domesticating multinational corporations. In 2017, telecoms companies were ordered to list at the local securities exchange. Some did, others are still working their way into listing.
 In the last four months or so, other MNCs have offloaded their majority stake to Tanzanians. Among these is Fastjet, which has sold its majority stake. The local outfit, Fastjet Airlines is grounded. MultiChoice, the pay-TV giant is also considering offloading its majority stake to a Tanzanian. Its fate remains to be seen.
The headwinds facing fastjet are illustrative of the conditions that must hold for economic nationalism to succeed: The country must have the financial muscle, technical and managerial competencies to replace the deep-pocketed foreigners. And it must also have a large market to sustain the new outfit.  
In mining, the country must have a monopoly over the resource.  In Natural gas, it faces competition from Mozambique. Tanzania has 58 trillion cubic feet of recoverable natural gas. The main discoveries are in the Rovuma Basin, which has yielded 75 tcf in Mozambique, just across the border.
 Mozambique has sanctioned Eni’s Coral South floating LNG project and an Anadarko-led LNG development may not be far behind, reports Bloomberg. Tanzania's plans are still struggling to get off the drawing board reports, Petroleum Economist.
The publication does not see Tanzania exporting LNG until mid -2020s due to delays in contract negotiations.   

Tanzania is ambitious but lacks the necessary wherewithal to implement its goals and could stumble its economy further if her volleys with investors continue. She does not have the capital muscle to exploit her resources.  

Monday, 1 April 2019

The Second Scramble for Africa

SGR in Kenya. Chinese completed it
with 18 months to spare
The second scramble for Africa is in top gear.  A few things are different though from the first Scramble. At that time, missionaries led the ‘discovery” of the entire Africa with Bibles in their hands. The second scramble targets African resources, that is true, but it is more discrete.
Targeted are the large African economies such as Nigeria, Ghana, Ethiopia and Kenya. The last two economies are the largest in East Africa and are growing robustly. In fact, Ethiopia is among the top ten fast growing economies in the fast-growing is the more dynamic of the two, with a well- established entrepreneurial culture.
The next difference is the drivers of the scramble. In the first scramble, the pathfinders- discoverers if you wish- were Missionaries and explorers. These have been replaced by Government officials and businessmen.  This is not a contest for African resources among European countries. It is between the West and China, the second largest economy in the world. In fact it’s a battle to fold back China’s presence in Africa!
And unlike the first scramble for Africa, there’s no likelihood of a Berlin conference to partition Africa. The gun has been replaced with “charm offensive and personal touch” exemplified by high-level visits to or out of Africa by Heads of State. They strengthen diplomatic relations with African governments, throw in some aid, and let the private sector scramble for business.
Kampala-Entebbe Expressway. These
 are the projects Africa needs urgently
China wormed its way into the top perch of Africa’s development partnerships in the last decade through its “contract-oriented, low-cost, low-interest model of doing business,” says a French Diplomat quoted by Reuters. Now, the West, whose grip on Africa is slipping, is plotting to upstage China’s model.
The accompanying political rhetoric is a pointer to the real goal. China is being branded a “predator Partner, disrespectful of the sovereignty of Africa countries, and whose investments do not create jobs in Africa. The west is promising to be the opposite of all these “ills.”
The US and France are leading the charge and have changed their business model for Africa. China, through “contract-oriented, low-cost, low-interest model of doing business,” enforced by its Exim Bank, has funded Chinese contractors building infrastructure in Africa. Now China finances 50 per cent of all infrastructure projects in Africa. Also Read http://eaers.blogspot.com/2018/09/african-market-entices-the-beast-and.html
The West’s business model is slightly different. Its “personal relations” with the leaders approach is meant to pave the way for the Private sector in the West to gain a foothold in the “Rising Continent” which boasts of a growth rate higher than the West. According to African Development Bank, the continent will post a growth rate of 4.2 percent this year, almost double the rate in the West. For this reason the West is salivating for a piece of the action in Africa. The US enacted the Build Act which raises investment into Africa to US$ 60 billion, the same amount China has committed to Africa’s infrastructure development.  The US has also created a state agency to spearhead the scramble for business in Africa. Also Read: http://eaers.blogspot.com/2018/10/usa-hastens-pace-for-african-market.htm
And France has hit the road running, striking deals in East Africa for French companies. In Kenya two weeks ago, France struck deals worth $3.3 billion for French builders.
The West has woken up to the reality that Africa is the place to be and they have to get there fast. That means a change in their “Enter Africa Business Model.” In the past, bilateral aid and NGOs funded development in Africa. But this failed. In fact, this model paved the way for Chinese entry into Africa for it was bureaucratic, inefficient, and out of sync with African development needs.
Africa thus turned to China for development finance and China did not disappoint.  Within a decade, the West was elbowed out of Africa.
Seven years ago, we accurately diagnosed the cause of the West’s cirrhotic development record in Africa: Bureaucracy, activism, lack of finances and politics of NGOs. These characteristics frustrated African governments that needed urgent funds to develop infrastructure. They thus turned to China which responded with loans and contractors to do the job. The Chinese were efficient!
 To remove public sector inefficiencies that frustrated Africans in the past, the West has the Private sector playing a major role in Africa’s development. Public-Private sector- Partnerships are becoming the norm in the West’s business model for Africa, the last frontier for economic development.
The new model also is a reflection of realities in the West; they do not have the public funds necessary to invest in Africa and challenge the Chinese dominance. But the Private Sector can mobilize resources with a bankable business Model for an infrastructure project. There is an estimated 100 trillion US dollars in savings across the world which can be harnessed for Africa’s infrastructure development, says the African Development Bank, AfDB.
And that is why fund managers are joining contractors in consortia to bid African Infrastructure. The French firms seeking PPP concessions in Africa for instance come in a consortia that incorporate fund managers. The French Consortia seeking to upgrade the Nairobi- Mau summit highway have fund incorporated Fund managers.  This is for the purposes of mobilizing funds for bankable projects.
Ndogo Kundu One: Completed on time.
 Africa needs efficient Financiers and Contractors
So determined are the firms for a piece of the African pie that they are going for each other’s throat. There is a fierce fight over the award of the bid for the construction of Nairobi- Mau Summit highway.  The losing bidder, a consortia involving the African Infrastructure Investment Fund 3 Partnership, (Aiim), Egis, Mota-Engil and Orascom is challenging the winning bidder, a consortia led by led Vinci Highways SAS, Meridian Infrastructure Africa Fund and Vinci Concessions SAS as the preferred bidder for the project.
This is not surprising:  east Africa is the fastest growing region in Africa posting robust growth rates in the upwards of 5 percent. Kenya and Ethiopia are the two largest economies in the region that are attracting the interest of the West. However, Kenya, the most dynamic economy in East Africa, is the business hub of the region and it is where prospects for business deals are easily available and mouthwatering. Any firm winning a bid in Kenya will have struck gold- and a chance to win more bids
The heavily motorized Northern Corridor, which connects landlocked countries in the region to the Mombasa Port is attracting a lot of PPP interest. The US Construction firm, Betchel Executive, has bagged the bid for the 473 Kilometer long Mombasa- Nairobi Section, which plans to build a six lane Expressway on PPP basis. The French are pitching for Nairobi- Mau summit section on the same corridor. Both are eyeing a 25 year concession during which they will collect tolls from motorists to pay themselves off.
  However, there is the down side of the West’s model. A number of contractors that found their way into Kenya through “personal charm” have disappointed.  The Spanish Construction firm, Grupo Isolux went under before completing its contract to build a 428 km 400 kV power line worth US$208 million in Kenya. The line was meant to transmit electricity from a 310 MW wind power plant.
Also in Kenya, the Italian firm  CMC di Ravenna Itinera has filed for Bankruptcy at home after winning two EPC bids to construct Dams in Kenya worth US$690 million.  The same firm has also not completed another Dam in Kenya.
These Bankruptcies could red flag Western firms as potential defaulters, paving the way for further Chinese entrenchment in Africa.

Despite these dangers, the renewed interest of the West in Africa is a plus. It will strengthen Africa’s hands while negotiating Chinese loans. It will also scare the Chinses forcing them to tone down their “predatory “ lending approach in Africa.
The scramble for Africa will be decided, not in a Berlin conference, but by efficient delivery of contractual obligations.

Tuesday, 5 March 2019

Kenya gunning for eighth slot in world geothermal rankings

Screengrab of KenGen Presentation
Kenya is set to leapfrog Iceland as the world’s eighth largest geothermal producer in the World.  The country will launch its 165.4 Mw Olkaria V power plant in July this year bringing its total geothermal capacity to 855.4 MW, ahead of Iceland’s 710 MW.

 And going by the string of investments currently in progress, Kenya could also leapfrog Italy, the “birthplace” of geothermal technology from position seven in a year or two. In fact, Mexico and New Zealand also have their positions seven  and six respectively, threatened by Kenya’s investments.
The capacity of these three are Italy 944 MW; Mexico 951 MW and New Zealand 980 MW. All these are within Kenya’s sight which has a penchant for large capacity plants. Currently, there are three projects whose contracts have been approved to generate more than 400 MW of geothermal power in the next three years. These are; Suswa 300MW and Menengai GDC field 105 MW. This is in addition to Kengen’s Olkaria 1 unit 6 that will generate 83 MW and is expected to come on stream in 2021.
 Currently, Kenya is probably the only country in the world that has geothermal as its baseload source. Baseload is the minimum power that must be in the system always. Hydropower has relinquished that position, which it held for dog years to geothermal. Kenya’s geothermal potential is estimated at 10 GW found mainly in the Greater Rift Valley.
Italy discovered and developed geothermal energy more than 100 years ago. It was the leader until the second half of the 20th century when other countries tapped into the power source, says Energy Siren. The United States is the current leader in geothermal generation with a capacity of 3,591 MW, adds the publication.
Ol karia V: Set to catapult Kenya to
the eighth slot in the world.
Given the rise of geothermal, the Kenyan power distributor, KPLC, has re-engineered its power purchase–mix, buying more geothermal energy in 2018.  The mix comprised of: geothermal 47 percent; hydro 39 percent; Thermal 13 percent in 2018.  The mix is expected to change further this year with the entry of must-consume sources such as Wind and Solar power. Wind power formed only one percent of its purchases last year and solar power was virtually unknown.
The geothermal capacity at 700 MW, is second only to Hydro at 821 MW but, given the growing investment in this industry, Hydro will soon relinquish its top slot. For instance, In July this year, KenGen, the leading power generator in the country, is set to Commission the 165.4 MW Ol Karia V geothermal power plant, raising Geo capacity to 855.4 MW, just ahead of hydro.
Kenya’s current electricity generation capacity has risen to 2715 MW against a peak demand of 1802 MW. Demand, according to KPLC, grows at 8.8 percent a year.  With the entry of the 165.4 MW Olkaria V, in July, Kenya’s power generating capacity will rise to 2880 MW. Demand, at the going growth rate,
will stand at 1961MW, leaving a spare capacity of 919 MW or 32 percent.
The spare capacity, which is a requirement in power generation, stood at 23 percent by June 31, 2018, says the power Distributor, KPLC, in its annual report 2017/18.  However, the capacity rose to 34 percent following the Commissioning of Lake Turkana wind power and the Garissa solar farm.  These two added a further 364MW to the national grid.
 Although the spare capacity is good for the power generating community- and the country since it eliminates power black-outs and rationing-they are a cost that has to be financed by the consumer.
Excess capacity,--idle capacity if you wish-  is also good for planning for it ensures that new investment in power generation is prudently studied-and allowed when necessary.
 The growth of renewable and cheap green energy sources has rendered thermal technology obsolete. Power deficits in the 1990s, according to a World Bank study, forced many African governments to allow investment in quick- to -commission thermal powered generator. At that time, crude oil Price was less than $20 per barrel.  They were thus manageable. However, with the rise in crude prices, thermal power generation has become expensive.
These contracts, called Power Purchase Agreements, PPAs still continue to haunt the electricity consumer. Coupled with excess capacity now, they keep the power bills high.

With hydro turning into a stabilization source, the need to re-engineer power generation sources in Kenya is high. The restructuring will involve decommissioning thermal power plants. But the cost of doing so at once is astronomical.  Hence the decision to allow the contracts to run their course, decommissioning thermal plants once their contracts expire.